Food Supply Chain Overview

1. Food Supply Chain Overview ISQA 458/558

2. Food Supply Chain • Structure • Definition • Trends

3. The Supply Chain Players Consumer Food Service, Schools or Gov. Retailer Wholesaler, Distributor, Agent or Broker Food & Beverage Manufacturing Farm, Ranch, Fishery or other provider Agricultural Producers

5. Food Producers (raw materials)

6. Number of Farms increasing for vegetables, crops and hay, animals & eggs, but declining for most other things.

7. Trend toward more small and very large farms, loss of the middle Segment (family farms versus corporate farms)

8. Farmers & Producers • > 2.1 million farmers & ranchers • 125,000 of them control 75% of production • Sales $375 Billion • Focus • 650,000 cattle ranchers • 500,000 hay farmers • 330,000 grain and oilseed farmers • 100,000 fruit and nut farmers

9. Food Manufacturers and Processors • 26,000 companies in US & $540 Billion in Sales • Meat products 18.5% (4 firms control 80% of market) • Bakery 16.6 % • Fruits & Vegetables 14% • Dairy 10.7 % • Sugar, candy, grains, oilseeds, seafood. Etc. • Make up 70% of grocery sales, 10% are unprocessed, and remainder = non-food • 100 large firms control 75% of all processed food

10. Wholesalers, distributors, agents and brokers roles • Whole group = 33,000 players ($600 B) • Wholesalers/Distributors: • Purchase groceries and related products from processors or growers and resell to retailers, institutions, and other companies • Manufacturer’s sale branches: • Wholesale operations maintained by processors to market their own products • Agents & Brokers (w/ above ~4700): • Wholesale entities that buy or sell as representatives of others for a commission and who do not usually handle the product.

11. Food Service Vendors • 580,000 vendors ($580 B) • 40% full service restaurant • 37% limited service • 6.1% education • 4.4 % hotels • $580 Billion in sales • 3 companies control most food service management contracts • ½ spent on food away-from-home typically at full-service or fast-food restaurants

12. Retailers • More than 210,000 stores • (sales $584 Billion) • 32,000 Supermarkets (stores with sales > $2 Million) • ¾ of all grocery stores are operated by corporate chains • Retailer power - 4 retailers – 40% market share • Typical store has 25,000 items and inventory turns 14 times/yr • Produce turns 58 times/yr • Non-food turns 4-6 times

13. Logistics Providers • Cover movement, storage, management of inventory • Transportation • Storage facilities • Third parties for managing products and information • 800,000 warehousing and transportation firms. • Increasing outsourcing to third parties

14. Driving Forces and Trends affecting the industry Consolidation of the Supply Chain Technology Regulation Environmental Factors Management Orientation/philosophy

15. Consolidation Corporate Farms Mega-Manufacturers Largest Chain Restaurants? Largest Grocery Retailer?

16. Largest Chains by Number of Units? • Subway, 24,722 • McDonald’s, 14,098 • Starbucks, 10,821 • Pizza Hut, 7,600 • Burger King, 7,231 • Dunkin’ Donuts, 7,015 • Wendy’s, 6,594 • Dairy Queen, 6,187 • Taco Bell, 5,670 • Domino’s Pizza, 4,907 • Who would be number one in sales? • McDonalds (34 Billion in 2011)

17. Example Brands • Consolidation of Organic & Natural Food Horizon Kashi Ben & Jerry’s Nantucket Nectars Celestial Seasonings

18. Consolidation Animationhttps://www.msu.edu/~howardp/organicanimation.html

20. What does this consolidation mean for the supply chain members? • You are a food product innovator and want to bring your product to market? • How might consolidation create interesting business opportunities?

21. Who is “The Food Industry”??? The Food and Agriculture Industry Farming & Growers Raw Ingredient Processors Function Food Ingredient Manufacturers Consumer Packaged Food Manufacturers Distributors Retailers (traditional/non-traditional) Foodservice Establishments Non-Food Industries Chemical Suppliers Utility Suppliers Packaging Suppliers Equipment Manufacturers Transportation Industry Analytical/Testing Environmental Industry Information Management Key Constituents Government Agencies/Political Media Employees/Unions Stockholders/Boards/Wall Street Advocacy Groups Academics/Foundations Medical Community Consumers

22. Technology • Integrated systems of: • RFID (Radio Frequency Devices) • Bar Coding • Facility Software Management Systems • Internet (on-line purchasing usage) • 20% of Food Wholesalers • 40% of Restaurants • 15% Food Processors • Results • Improved food inventories • More efficient distribution • Better customer service levels • Note: Food stock-outs still cost industry 7-12 billion/yr.

23. Regulations • Government oversight is increasing • Two main bodies • U.S. Department of Agriculture • Food and Drug Administration • Product Liability & Traceability • Food Tampering/Security • Import/Export restrictions and trade barriers

24. Environmental Factors: The big squeeze

25. Environmental Factors • Pesticide and Herbicide use • Excess Fertilizer and animal waste runoffs from large farms • GMOs • Others? • Leads to supply chain shifts: practices, certification, market opportunities, regulation increases, and purchasing policy changes.

26. Management Orientation/Philosophy • Food Industry slow adopters of philisophy from mainstream manufacturing • Just-in-time: JIT • Sustainability • Quick Response or Efficient Customer Response (ECR) • Collaborative planning, forecasting and replenishment

27. New Performance Assessment/Metrics • Better, faster, cheaper • Environmental, animal treatment, wild lands, community commitment

28. Other trends • Shift in power from food manufacturers to food retailers • Increases in the number and scope of “vendor participation programs” • Increases in slotting fees (fees charged to manufacturers to “rent” shelf space in the retail store).